The mainland's private sector should invest in Europe as it would help reduce foreign reserves and ease inflation in the world's second-largest economy, an adviser to the country's central bank said yesterday. Li Daokui, a monetary policy committee member at the People's Bank of China, said outbound investments by private companies would contribute to economic recovery in Europe and help the mainland reduce its credit base. 'We have opportunities to induce and encourage private [firms] to get US dollars, to get euros and then send out their yuan to reduce our credit base and to reduce our official currency reserves at the same time,' Li said at a business conference. His comments are among increasing calls from economists to encourage local companies to make investments in Europe as a means to bail out the debt-stricken region, rather than mainly relying on Beijing to buy sovereign bonds issued by European countries. China has encouraged companies to invest abroad for years. As companies use foreign currencies for the investments, the banking system would be less pressured to inject equivalent amounts in yuan. Foreign reserve accumulation, evidenced by a trade imbalance criticised by Western politicians, could slow. 'In this I think we have a hope in solving or mitigating our rapid credit supply issue,' Li said. 'If you look at the past three years, I would say 15 or even 20 per cent of our increasing credit supply is due to the inflow of foreign currencies.' Ba Shusong, a senior economist with the State Council's Development Research Centre, said encouraging private companies to buy European assets would be 'more efficient' than buying treasuries. 'The companies could buy Asian assets owned by European companies or industrial assets in the real economy of European countries,' Ba said. 'It would be a win-win deal. The Chinese company would not lose all of its investment even if turns out to be a loss. For Europe, it helps employment.' The mainland's outbound investment reached US$68.8 billion last year, up 21.7 per cent from 2009. China was the fifth largest outbound investor last year, but accounted for only 5.5 per cent of the US$1.24 trillion in global total investments. In the first three quarters of this year, investment by non-financial institutions was US$41 billion, up 12.4 per cent. Deutsche Bank chief economist Ma Jun forecast that the mainland's outbound investment would rise faster than inbound investment, resulting in about a 20 per cent decrease in net foreign direct investment to US$100 billion this year compared with last year.